Law Commons^™

Section 546(E) Safe Harbor Provision Applies To Transactions Involving Private Securities, Nino Aspanadze

Bankruptcy Research Library

(Excerpt)

A bankruptcy trustee may not avoid a margin or settlement payment made by, to, or for the benefit of a financial institution (or another covered entity) when the payment is made in connection with a securities contract as defined in section 741(7) of title 11 of the United States Code (the "Bankruptcy Code"). "A transfer is ‘in connection with' a securities contract if it is 'related to' or 'associated with’ the securities contract.' A bankruptcy trustee may avoid a covered transaction only if it was made with actual intent to hinder, delay, or defraud creditors. The purpose of Section …

Chapter 5 Avoidance Actions Can Be Sold As Property Of The Estate, Enrica Brook

Bankruptcy Research Library

(Excerpt)

Many courts, including the Fifth, Seventh and Ninth Circuits, have found that avoidance actions, under Chapter 5 of the Bankruptcy Code, are property of the estate. Section 541(a)(1) of the Bankruptcy Code defines property of the estate as "all legal or equitable interests of the debtor in property as of the commencement of the case," and section 541(a)(7) states that "[a]ny interest in property that the estate acquires after the commencement of the case" is estate property. The Supreme Court has interpreted the definition of "property of the estate" broadly, finding section 541(a)(1) can be read "to include in …

Insider May Be An Alter-Ego When It Exercises Control Over A Debtor, Delanie Fico

Bankruptcy Research Library

(Excerpt)

Section 101(31) of title 11 of the United States Code (the "Bankruptcy Code") defines an "insider." This definition, however, is not exhaustive. Courts have concluded that certain persons or entities not mentioned in the statute can be "non-statutory" insiders. In certain circumstances, a statutory or non-statutory insider may be the alter-ego of a debtor. As an alter-ego, an insider may be liable for a debtor’s debt. Alter-ego liability may be imposed on an insider who significantly controls the debtor and has committed some form of injustice.

This memorandum discusses an insider’s possible liability for a debtor’s debt in the …

Courts Are Divided On Whether Electric Energy Is A "Good" Under Section 503(B)(9) Of The Bankruptcy Code, Mari Bijimenian

Bankruptcy Research Library

(Excerpt)

Under Section 503(b)(9) of title 11 of the United States Code (the "Bankruptcy Code"), the value of goods received by a debtor in the ordinary course of business, within 20 days before the date of commencement of a case, can be granted administrative priority status. Bankruptcy courts have grappled with settling on a definition of "goods" because neither Section 503(b)(9) nor the Bankruptcy Code at large define "goods." While the definition of "goods" is a matter of federal interpretation because Section 503(b)(9) of the Bankruptcy Code is federal law, "bankruptcy courts have almost without exception looked to the Uniform …

Section 363(M) Is Not A Jurisdictional Constraint On Appellate Review Of Property Transfers, Agustin Bujanda

Bankruptcy Research Library

(Excerpt)

Under section 363(b) of title 11 of the United States Code ("the Bankruptcy Code"), the trustee "may use, sell, or lease, other than in the ordinary course of business, property of the estate." Under section 363(m), once a transfer of property has been authorized, the "reversal or modification on appeal of an authorization under subsection (b) . . . of a sale or lease of property does not affect the validity of a sale or lease . . . unless such authorization and such sale or lease were stayed pending appeal."

Until recently, various circuit courts were split on …

A Prepetition Security Interest In Accounts Does Not Extend To The Post-Petition Sale Proceeds Of Real Property, Gabriel Eckstein

Bankruptcy Research Library

(Excerpt)

Section 552(a) of title 11 of the United States Code (the "Bankruptcy Code") states that "property acquired by the estate" after the commencement of the case is not subject to any secured lien possessed by a secured creditor that was created before the commencement of the case. A secured lien is a "legal right or interest of a creditor in a debtor’s property, which lasts until the debt it secures is satisfied." Section 552(b)(1) provides limited exceptions to the general rule in Section 552(a). If a debtor and a creditor entered into a security agreement before the commencement of …

The Regulatory Power Exception To The Automatic Stay, Kathleen Gatti

Bankruptcy Research Library

(Excerpt)

Upon a filing a petition under title 11 of the United States Code (the "Bankruptcy Code"), all actions against a debtor are generally automatically stayed. While the automatic stay is broad, there are exceptions. Under the regulatory power or police power exception, a governmental unit or organization is not stayed from taking any action "to enforce such governmental unit's or organization's police and regulatory power." Not all actions by a government are immune from the automatic stay. Courts have generally held that an action to effectuate a "public policy" is not stayed, but an action to advance the government’s …

U.S. Bankruptcy Courts Balance The Statutory Protections Of Stakeholders With The Needs Of Discovery In Foreign Bankruptcy Proceedings, Conor Carman

Bankruptcy Research Library

(Excerpt)

Chapter 15 of title 11 of the United States Code (the "Bankruptcy Code") establishes methods for managing insolvency cases that encompass debtors, assets, claimants, and other parties across multiple nations. Section 1521(a)(4) allows courts to grant discovery relief. To determine whether to grant discovery relief, courts balance the right to discovery relief with stakeholder interests. As part of a U.S. courts’ analysis, it considers principles of comity to support a foreign bankruptcy proceeding.

This memorandum discusses the statutory availability for discovery relief under chapter 15, limitations on discovery imposed by courts to protect stakeholder interests, comity, and how courts …

The Effect Of Rejection Of A Copyright License On A Non-Debtor Licensee, Thomas Meininger

Bankruptcy Research Library

(Excerpt)

In general, a trustee may assume, reject, or assign an executory contract of the debtor under title 11 of the United States Code (the “Bankruptcy Code”). Courts have generally held that intellectual property license agreements are executory contracts. If the license is an exclusive copyright license, it is a transfer of ownership under title 17 of the United States Code (the “Copyright Act”). Thus, some courts treat a copyright license as transfer of ownership, not an executory contract.

This article explores the rights and obligations of a non-debtor licensee when a debtor-licensor rejects a copyright license under the Bankruptcy …

Lifting The Automatic Stay After Foreclosures In New York, Andrew Vavricka

Bankruptcy Research Library

(Excerpt)

The filing of a bankruptcy petition under title 11 of the United States Code (the “Bankruptcy Code”) results in an automatic stay that bars collection efforts against a debtor’s property. Consequently, a creditor will generally be prevented from foreclosing on property in which a debtor has an interest, including a possessory interest. Section 362(d), however, provides that the automatic stay may be lifted or modified under four alternatives. This article will discuss the implication of the automatic stay on a New York foreclosure action and bankruptcy courts’ rationale for lifting the automatic stay in the foreclosure context.

Part I …

Solvent Debtors Must Pay The Contractual Post-Petition Interest Rate On Unimpaired Claims, Rayla Aberman

Bankruptcy Research Library

(Excerpt)

The default rule in bankruptcy law is that when a debtor files for bankruptcy, interest ceases to accrue on their unsecured claims. This general principle is subject to an exception known as the solvent debtor exception. Under this exception, solvent debtors are required to pay post-petition interest on their outstanding claims, even after filing for bankruptcy. Section 726(a)(5) of the Bankruptcy Code states that solvent debtors must pay interest at “the legal rate.” However, the Bankruptcy Code does not define what the legal rate is, and courts have disagreed over whether it applies to both impaired and unimpaired claimants. …

Trustee’S Broad Duty To Disclose Information To Interested Parties Under Section 704(A)(7) Of The Bankruptcy Code, Joel Cardoz

Bankruptcy Research Library

(Excerpt)

A trustee has a duty to disclose information to interested parties upon request. Section 1109(b) of title 11 of the United States Code (the “Bankruptcy Code”) includes creditors in the definition of interested parties. Trustees must obtain a court order to be excused from their duty to disclose.

A trustee’s duty of disclosure is “broad and extensive.” Courts are reluctant to excuse the trustee from their duty of disclosure unless the trustee points to a compelling “countervailing fiduciary duty … whose performance is more important than avoiding the harm resulting from withholding the information in question.”

First, this article …

A Secured Creditor’S Ability To Have An Automatic Stay Lifted Against A Single Asset Real Estate, Zachary Rozycki

Bankruptcy Research Library

(Excerpt)

The filing of a petition for relief under title 11 of the United States Code (the “Bankruptcy Code”) results in an automatic stay, which generally enjoins any creditor from taking action against the debtor or its property. Pursuant to section 362(d)(1) of the Bankruptcy Code, an automatic stay may be terminated upon a showing of “cause.” Additionally, under section 362(d)(2) a stay may be terminated as to property if the debtor has no equity in the property, and the property is not necessary to an effective reorganization. Further, under section 362(d)(3), an automatic stay may be lifted as to …

Non-Income Producing Properties That Never Operated May Be Single Asset Real Estate Under The Bankruptcy Code, Paul R. Spagnoli

Bankruptcy Research Library

(Excerpt)

Section 101 of title 11 of the United States Code (the “Bankruptcy Code”) includes a definition for a single asset real estate (“SARE”). A debtor that owns SARE is subject to certain special rules. In particular, the automatic stay will be lifted, upon the request of a secured creditor as to the SARE unless the debtor has either (i) begun making payments with interest at the nondefault rate to the secured creditor or (ii) has filed a plan of reorganization which has a reasonable possibility of being confirmed within a reasonable period of time. This article addresses whether a …

Debtor Needs To Have Benefitted From Fraud To Be Barred A Discharge Under 11 U.S.C. § 523(A)(2)(A), Elizabeth Tighe

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides that a court may grant a debtor a discharge of its debts, subject to certain conditions and exceptions. One exception to dischargeability is set forth in section 523(a)(2)(A), which bars a discharge from debt “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.”

A key phrase in the statute is “obtained by” and courts have applied a …

Debts Based On Fraudulent Misrepresentations Of Material Fact May Not Be Discharged Under § 523(A)(2)(A), Lauren Shoemaker

Bankruptcy Research Library

(Excerpt)

In general, title 11 of the United States Code (the “Bankruptcy Code”) provides that an individual may be discharged of his or her debts at the conclusion of his or her bankruptcy case. A discharge relieves a debtor from liability for its unpaid pre-petition debts and acts as an injunction, barring a creditor from collecting such debts from the debtor. However, under section 523(a)(2)(A) of the Bankruptcy Code, an individual debtor cannot be discharged from any debt for money obtained by “false pretenses, a false representation, or actual fraud.”

This article explores when debtors cannot be discharged of their …

A Claims Agent Can Only Profit From The Fees The Clerk Of Court Can Charge, Peter Berkanish

Bankruptcy Research Library

(Excerpt)

In the Southern District of New York, the retention of claims agents is governed by the judicial procedure set forth in section 156(c) of title 28 of the United States Code, for cases under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) that involve 250 or more creditors and equity holders. When a claims agent is retained under section 156(c), the claims agent is acting in the same capacity as the clerk and the services are “limited in scope to those duties that would be performed by a Clerk of Court with respect to …

When Deciding Whether To Transfer Venue, Bankruptcy Courts Will Consider Their Discretion To Retain A Case, As Well As The Interests Of Justice And Convenience Of The Parties, Cole Eiber

Bankruptcy Research Library

(Excerpt)

When a debtor decides to file a petition for bankruptcy, one decision to make is in what court, or what jurisdiction to file. However, the debtor’s choice of where to file is not always indisputable. Once a case is filed in a particular court, any “party in interest” may bring a motion seeking to change the venue of the case to an alternate court. Additionally, a court, on its own motion, may transfer a case to an alternate venue. The three statutory provisions that govern transfers of venue are Bankruptcy Rule 1014 (“Rule 1014”), 28 U.S.C. § 1408 (“Section …

The Third Circuit Requires Inequitable Conduct By A Higher-Priority Creditor To Equitably Subordinate Its Debt To A Lower-Priority Creditor, Caitlyn R. Marino

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) implements a basic priority system under section 507 to determine the order a bankruptcy court will distribute the assets of an estate. The classic hierarchy begins with secured creditors, then “[s]pecial classes of creditors, such as those [holding] certain claims for taxes or wages . . . [then] low-priority creditors, including general unsecured creditors . . . [followed by] equity holders . . . [who] receive nothing until all previously listed creditors have been paid in full.” Section 510(c) of the Bankruptcy Code authorizes disturbing the fundamental distribution scheme …

Free And Clear Sale Under Section 363 Of The Bankruptcy Code Prevents Successor Liability, Matthew Bopp

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code allows a debtor to sell its assets free and clear of any interest in such property, pursuant to section 363(f) of the Bankruptcy Code. Section 363(f) is used to allow the trustee to sell assets not in the ordinary course of business and to allow purchasers to buy assets without the fear of liability. The Bankruptcy Code does not define the term “interest.” Thus, in interpreting section 363(f), a court must view interest in property expansively. Using section 363(f), courts have extinguished several types of claims and interest in property including: possessory interests, employment related claims, …

A Majority Of Courts Reject The Application Of The Rules For Disallowance Of Claims Under Section 502(D) To Administrative Expense Claims, Mairead Cooney

Bankruptcy Research Library

(Excerpt)

Since the adoption of title 11 of the United States Code (the “Bankruptcy Code”), courts have struggled with the application of administrative expense claims. Administrative expenses include the actual costs and expenses of preserving the estate after the commencement of a bankruptcy case. Allowance of an administrative expense claim is governed by section 503 of the Bankruptcy Code. A question arises, however, whether the rules of governing the allowance of claims, under section 502, also applies to administrative expense claims.

Under section 502(d), a court may “disallow any claim of any entity from which property is recoverable . . …

The Dischargeability Of Money Judgements Versus Property Interests In Arbitration Awards For Domestic Contributions In The Context Of Unmarried Couples, Gabriella Hansen

Bankruptcy Research Library

(Excerpt)

A debt which arises prior to the filing of the petition for discharge in bankruptcy is dischargeable unless it can be categorized as one of the statutory exceptions to discharge listed in section 523(a) of title 11 of the United States Code (the “Bankruptcy Code”). Section 523(a)(5) of the Bankruptcy Code prohibits the discharge of awards of domestic support due to a debtor’s spouse, former spouse, or child. Accordingly, maintenance, alimony, and child support, often awarded in divorce proceedings, fall under the federal bankruptcy law statutory exceptions to discharge for domestic support obligations.

When an unmarried couple separates and …

A Transfer Made In Connection With A Securities Contract May Not Be Avoided Under Section 546(E) Of The Bankruptcy Code, Dennis Mossberg

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy trustee has the power to avoid, or claw back, certain transfers of property made before a bankruptcy filing. A trustee may avoid transfers such as those that are preferential under section 547 and fraudulent transfers under section 548. Section 546(e) of the Bankruptcy Code generally provides that a transfer made by, to, or for the benefit of a commodity broker, stockbroker, financial institution, or securities clearing agency in connection with a securities contract cannot be avoided. In 2018, the Supreme Court clarified the scope of the …

A Decedent’S Estate Is Barred From Filing Bankruptcy, Howard Poon

Bankruptcy Research Library

(Excerpt)

A “person” that “resides or has a domicile, a place of business, or property in the United States, or a municipality” is generally eligible to be a debtor in a bankruptcy case under title 11 of the United States Code (the “Bankruptcy Code”). The definition of a “person” under the Bankruptcy Code includes “individual, partnership, and corporation.” Courts, however, have interpreted the definition of “person” broadly to include groups not explicitly mentioned in the statute. Consequently, a decedent’s estate, which is not expressly identified as a person under the Bankruptcy Code, may nevertheless argue that it is eligible to …

Avoidance Of An Unauthorized Post-Petition Transfer Of Intellectual Property Under Section 549 Of The Bankruptcy Code, Kathryn-Rose Russotto

Bankruptcy Research Library

(Excerpt)

Under section 549 of title 11 of the United States Code (the “Bankruptcy Code”), a trustee may avoid an unauthorized post-petition transfer of property of the debtor’s estate. Property is not limited to tangible property. Thus, a trustee can avoid a post-petition transfer of intangible assets, including intellectual property.

This article explores a trustee’s ability to avoid a post-petition transfer of intellectual property. Part I analyzes the legal standard for avoidance of unauthorized post-petition transfers under section 549. Part II examines section 549 in relation to intellectual property. Part III discusses the procedure for remedies a trustee can seek …

Covid-19 & The Warn Act During A Bankruptcy Case, Audrey Victor

Bankruptcy Research Library

(Excerpt)

The Worker Adjustment and Retraining Notification Act (“WARN Act”) provides that “an employer shall not order a plant closing or mass layoff until the end of a 60-day period after the employer serves written notice of such order to each impacted employee.” Under the WARN Act, a plant closing is “permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment….” A mass layoff is “a reduction in force which…(a) is not the result of the plant closing; and (b) results in an employment loss at …

The Application Of 11 U.S.C. § 523(A) To Subchapter V Corporate Debtors Under 11 U.S.C. § 1192(2), Elizabeth Allhusen

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor can receive a fresh start through a broad discharge of its debts. The general availability of a discharge is limited by section 523(a). Section 523(a) provides that certain types of debts of an individual are excepted from discharge. Section 1192 applies these exceptions in certain small business bankruptcy cases.

In 2019, Congress created Subchapter V of the Bankruptcy Code with the passing of the Small Business Reorganization Act (“SBRA”). The SBRA added provisions to Chapter 11 which apply to small business debtors. Small business debtors, as …

Creditors Not Precluded From Recovering Debtors’ Commercial Tort Litigation Recovery Through Security Interest, Dana Aprigliano

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides valuable protections for secured creditors. A secured creditor of a chapter 7 debtor is entitled to distribution of any debtor property (or its value) in which they have an interest before any other creditors are paid. Even if the debtor has filed under chapter 11 or 13, a secured creditor is still entitled to receipt of their collateral or its value.

Under Article 9 of the Uniform Commercial Code (“UCC”), commercial tort claims and their proceeds may collateralize secured liens. Hence, creditors believing they are secured by a …

Bad Faith Dismissals In Chapter 7, Myah Drouin

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides a fresh start to the “honest but unfortunate debtor.” Chapter 7 therefore permits a debtor to “discharge their outstanding debts in exchange for liquidating their nonexempt assets and distributing them to their creditors.” Dismissals in chapter 7 are governed by section 707 of the Bankruptcy Code. Section 707(a) governs all chapters of bankruptcy filings and applies when adequate “cause” is shown.

There is currently a circuit split regarding whether a debtor’s lack of good faith constitutes cause for dismissal under section 707(a). Under section 707(a), a case may …

Whether A Surety Agreement Is An Executory Contract Is A Crucial Determination For Both Creditors And Debtors In Bankruptcy, Elizabeth Gomiela

Bankruptcy Research Library

(Excerpt)

In bankruptcy, whether a surety bond is an executory contract is not a question that is often addressed by the circuit courts of appeals. However, this determination is crucial for both debtors and creditors because only executory contracts can be assumed, rejected, or pass through in bankruptcy.

“A surety bond creates a three party relationship, in which the surety becomes liable for the principal's debt or duty to the third party oblige.” The term “executory contract” has not been defined within title 11 of the Unted States Code (the “Bankruptcy Code”), however the Supreme Court concluded that "Congress intended …